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August 29, 2020

First, a review of last week’s events:

  • EUR/USD. 60% of analysts once again tried to give priority to the dollar last week, hoping that the EUR/USD pair will still break the support of 1.1700. In the opinion of the remaining 40%, it should have stayed within the side channel 1.1700-1.1910, which actually happened. Moreover, its finish took place near the upper border of this corridor.
    The growth of the pair and the weakening of the dollar were blamed on the statement by the head of the US Federal Reserve Jerome Powell at a symposium in Jackson Hole which some analysts even called historical. The Fed decided to take the most serious step in monetary policy starting in 2012, announcing its plans to aim for an “average inflation rate of 2%.” This means that the regulator will not tighten its monetary policy even if the inflation rate exceeds these very two percent.
    These changes suggest a softer monetary policy in the coming months and even years. And even more so, investors should not expect an increase in the interest rate on the dollar. As Jerome Powell noted, the country's economy, which is recovering from the recession, needs low rates.
    As a result, the dollar went down, giving a signal to a sell-off of the US debt. There was a dumping of not only long-term, but also short-term government bonds. Together, this forms a kind of vicious circle, since the loss of interest in these securities can, in turn, put pressure on the dollar, which may lead to its further weakening against competing currencies.
    The market's awareness of this situation led to the fact that on Thursday-Friday the EUR/USD pair rose to the upper boundary of the corridor 1.1700-1.1910, ending the week session at 1.1900;
  • GBP/USD. The pound continues to climb to the 2019 high of 1.3515, and it got very close to this target last week, making a 280-point break and reaching 1.3350. The British currency is supported not only by the constantly weakening dollar, but also by the weakening British Prime Minister.
    According to The Times newspaper, Boris Johnson is struggling with the consequences of the illness caused by COVID-19, and for this reason can resign at the end of the Brexit transition period, that is, by end of the year. Since Johnson will be interested in ending his prime minister career on a high positive note, the UK's parting with the EU could go smoothly, without losing its access to the European single market and customs union. And this, naturally, will further strengthen the pound;
  • USD/JPY. The pair has been trading in the range of 105.10-107.00 for the last four weeks. However, its volatility has increased significantly in recent days. And the main reason for this is not the speech of the head of the Fed, Jerome Powell, but the news that Japanese Prime Minister Shinzo Abe intends to step down for health reasons.
    That message allowed the yen to strengthen by 175 points. Why? The question is quite complex. As some analysts explain, Abe served as Prime Minister for the longest time since the end of World War II, and together with the head of the Bank of Japan, Haruhiko Kuroda, did everything to prevent the strengthening of the national currency by any means, including negative interest rates. Such a policy has been called “Abenomics”, although many believe it is more correct to refer to it as “Kurodanomics”.
    Shinzo Abe is leaving now, and the era of "abenomics" may pass with him, which will entail a loosening of tight fiscal policies and a strengthening of the national currency.
    In the meantime, as mentioned above, nothing super serious has happened, the yen has kept within the August corridor and completed the five-day period at 105.35;

As for the forecast for the coming week, summarizing the views of a number of experts, as well as forecasts made on the basis of a variety of methods of technical and graphical analysis, we can say the following:

  • EUR/USD. Speaking at Jackson Hole, Jerome Powell, in fact, clipped the dollar's wings. The head of the Fed has made it clear that the interest rate will remain at a record low even in case of increasing inflationary pressures. This is clearly a bearish signal for the US currency, which amplifies the likelihood of the euro and other major currencies rising against the dollar.
    On the other hand, the Fed has no plans to lower the rate below zero, which is a moderate-positive factor for the USD rate. In addition, it should be borne in mind that other central banks can follow the path of the Fed, not reducing, but continuing and expanding the quantitative easing (QE) policy. So, for example, the ECB may take a position similar to the Fed. Already now, the head of the Bank of France, François Villeroy de Galhau, has spoken about a similar inflation target. Central banks of other countries of the Eurozone, in which the number of coronavirus cases is on the rise, can also join his voice. So the coming dollar drawdown is not as clear as it seems at first glance.
    So far, if you look at the indicators, the situation is not in its favour. 85% of oscillators on H4 and D1 are painted green, 15% are in the overbought zone. Among the trend indicators, there are even more supporters of the EUR/USD pair growth: 100% on H4 and 95% on D1.
    But the picture is radically different among experts. 60% of them believe that the pair will remain in the 1.1700-1.1910 price range. And since it finished the last week at its upper border, this means a trend reversal and a return of the pair to the level of 1.1700. The remaining 40% of analysts vote for the breakdown of the upper boundary of the channel, further weakening of the dollar and the rise of the pair first to the height of 1.1950, and then to the iconic level of 1.2000.
    It also makes sense to pay attention to the graphical analysis readings. On the D1, its forecast for September is as follows: first a drop to 1.1700, then a jerk up to 1.2035, followed by side movement in the channel 1.1900-1.2035.
    And a few words on the macroeconomic developments of the coming week. On Tuesday September 01, we will see data on the consumer market of the Eurozone, the US ISM business activity indices will be published on September 01 and 03, and on Friday September 04, we will traditionally learn about the state of the US labor market, including the number of new jobs created outside the agricultural sector (NFP);
  • GBP/USD. It is clear that 100% of the trend indicators at the end of the past week are looking northBut as for the oscillators on H4 and D1, 25% are already giving signals that the pound is overbought. 55% of experts also support bearish sentiment. Moreover, when moving from weekly to monthly forecast, their number increases to 80%. Support zones are 1.3275, 1.3155 and 1.3050.
    The GBP/USD pair closed the last trading session at 1.3350 - this is a fairly strong resistance level, which it had stormed unsuccessfully both in July 2018 and March 2019, so there are a lot of chances for a rebound from it and a downward correction. On the other hand, the desire of the bulls to renew the 2019 high at 1.3515 is also a strong stimulus that supports the losing dollar.
    As in the case of EUR/USD, graphical analysis on D1 is of interest. According to its readings, the pair may reach a height of 1.3515 in the coming days, after which a rebound will follow, and it will first return to support 1.3275, and then drop to the level of 1.3050.
    Certain adjustments to the dynamics of the pair can be made on Wednesday September 02 hearing of the Inflation Report prepared by the Bank of England and the speech of its head Andrew Bailey on Thursday September 03;

  • USD/JPY. The forecast for this pair is similar to that given above for the euro and pound. Most of the indicators point to a further weakening of the dollar, most experts, on the contrary, to its strengthening.
    100% of trend indicators and 75% of oscillators are painted red. The remaining 25% of oscillators on both timeframes, H4 and D1, signal that the pair is oversold.
    65% of analysts believe that the USD/JPY pair will not leave the 105.10-107.00 corridor limits, and only 35% consider the possibility of reducing it to the July 31 low of 104.18;


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